Thursday, December 2, 2010

Romania's Economic Slump Deepened Third Quarter on Austerity Sapped Demand

Romania’s economic decline accelerated in the third quarter as a slump in demand triggered by government austerity measures erased the gains from rising exports and industrial production.

Gross domestic product fell 2.5 percent from a year earlier after a 0.5 percent decline in the second quarter, according to final data released today by the National Statistics Institute in Bucharest in an e-mail. GDP contracted 0.7 percent from the previous three months after the first quarterly growth since 2008 in the second quarter. The decline matched the preliminary figures published on Nov. 12.

Economic output in Romania, which took an International Monetary Fund-led bailout last year, will probably decline for a second year in 2010 because of austerity measures implemented in July to meet budget-deficit targets, IMF Mission Chief Jeffrey Franks said Nov. 1.

The government raised the value-added tax by 5 percentage points and cut public wages by 25 percent to narrow the gap to 6.8 percent of GDP this year and 4.4 percent in 2011, sapping consumers’ purchasing power.

Producer-price growth, an early indicator of inflation, slowed in October as the effects of the VAT increase diminish. The cost of goods leaving mines and factories rose an annual 7.8 percent after a 7.9 percent jump in September, the statistics office said in a separate release. Prices rose 0.2 percent on the month.

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez in Prague atjagomez@bloomberg.net

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